PLAY CO. TOYS & ENTERTAINMENT CORP.
550 Rancheros Drive
San Marcos, California 92069
INFORMATION STATEMENT REGARDING THE PROPOSED
ACTION TO BE TAKEN PURSUANT THE WRITTEN CONSENT
OF A MAJORITY STOCKHOLDER IN LIEU OF A SPECIAL
MEETING OF THE STOCKHOLDERS
This information statement has been mailed on July 19, 1996 to the
stockholders of record on June 21, 1996 of Play Co. Toys & Entertainment Corp.,
a Delaware corporation (the "Company") in connection with the proposed action to
be take by the Company pursuant to the written consent by the majority
stockholder of the Company, American Toys, Inc. ("American Toys"), dated June
20, 1996. The action to be taken pursuant to the written consent shall be taken
on August 9, 1996. The principal executive offices of the Company are located at
550 Rancheros Drive, San Marcos, California 92069, the Company's telephone
number is (619) 471- 4505.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS AND NO
STOCKHOLDER MEETING WILL BE HELD TO CONSIDER ANY MATTER
WHICH WILL BE DESCRIBED HEREIN.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND
US A PROXY.
Authorization to Amend the Preferences and Rights of the Series D Preferred
Stock and Series E Preferred Stock and to Amend the Designation of the Series E
Preferred Stock into Two Separate Classes
On June 20, 1996, the Company's majority stockholder, American Toys, which
owns 2,548,930 or approximately 66.0% of the 3,863,530 issued and outstanding
shares of the Company's common stock, par value $.01 per share (the "Common
Stock") as of such date, executed a written consent authorizing the Company to
amend its Certificate of Incorporation, to (i) amend the rights and preferences
of the Series D Preferred Stock to provide that it shall be convertible into
1,157,028 shares of the Company's Common Stock and (ii) amend the Company's
Series E Preferred Stock to designate two separate classes, of which 10,000,000
shares shall be designated the "Series E Class I Preferred Stock," which shares
shall be convertible at any time into 20 shares of the Company's Common Stock,
and 10,000,000 shares of which shall be designated the "Series E Class II
Preferred Stock," which shares will be convertible at the option of the holder,
commencing two years from issuance, into 20 shares of the Company's Common
Stock. Pursuant to the annual meeting of the Company on May 3, 1996, the
stockholders approved the authorization of 20,000,000 shares of the Series E
Preferred
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Stock, however, the board of directors decided only to authorize a small
portion of such shares, and to amend the Certificate of Incorporation at various
times that additional authorized shares are needed.
Under Section 228 of the General Corporation Law of the State of Delaware,
any action requiring the consent of the stockholders at an annual or special
meeting of the stockholders of the Company, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Company.
RECENT DEVELOPMENTS
In November 1995, Thomas Davidson resigned as President and as a Director
of the Company effective November 28, 1995. Richard Brady was appointed Chief
Executive Officer and President of the Company.
On February 1, 1996, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with Congress Financial Corporation (Western)
("Congress") to replace its credit line with Imperial Bank. The Loan Agreement
provides the Company with a secured line of credit of up to 60% of the value of
all of its inventory, not to exceed $7,000,000 (the "Congress Financing"). The
Congress Financing is secured by the Company's assets and a $2,000,000 letter of
credit ("L/C") provided by Europe American Capital Corp. ("EACC") an affiliate
of Ilan Arbel, the Company's Chairman of the Board. Additionally, the Congress
Financing is guaranteed by American Toys and Mister Jay Fashions International,
Inc. ("Mr. Jay").
In connection with the issuance of the L/C the Company on February 2, 1996
granted to EACC options (i) to purchase up to an aggregate of 1,250,000 shares
of Common Stock at a purchase price of 25% of the closing bid price for the
Common Stock on the last business day prior to exercise, for a period of six
months from issuance and (ii) to purchase up to an aggregate of 20,000,000
shares of the Company's Series E Preferred Stock. The Company's estimated value
of the option described in (i) above is insignificant, which option was
terminated by EACC in June 1996. The Company estimated the value of the option
described in (ii) above to be $234,000 and recorded such amount as additional
paid-in-capital.
On February 2, 1996, Irwin Lampert and Richard Brady resigned as members of
the Company's Board of Directors. Mr. Brady continues as the Company's Chief
Executive Officer and President. Subsequently, the board appointed Sheikhar
Boodram, as a Director. Mr. Boodram is a Director of both American Toys, the
majority stockholder of the Company and Mr. Jay, previously the majority
stockholder of American Toys.
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On March 18, 1996, EACC loaned $500,000 to the Company which was
subordinated to the Congress Financing. In addition, EACC paid for approximately
$28,000 of the costs incurred to arrange the Congress Financing, bringing the
aggregate due to EACC to $528,000 as of March 31, 1996. On June 3, 1996 the
$528,000 debt was converted into equity whereby EACC exercised its option and
purchased 528,000 shares of Series E Preferred Stock. These shares of Series E
Preferred Stock will be redesignated Series E Class I Preferred Stock, upon the
filing of the Certificate of Amendment to the Corporation's Certificate of
Incorporation, as described herein.
On May 3, 1996, the Company held an annual meeting of its stockholders, at
which time the shareholders (i) elected three persons nominated by the Board of
Directors as Directors, (ii) adopted an amendment to the Company's Certificate
of Incorporation to effect a change of the name of the Company from Play Co.
Toys to Play Co. Toys & Entertainment Corp., (iii) authorized the adoption of an
amendment to the Company's Certificate of Incorporation to authorize one share
of Preferred Stock, par value $.01 per share, as the "Series D Preferred Stock"
and (iv) authorized an adoption of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
410,000,000 shares and to authorize 20,000,000 shares of Preferred Stock, par
value $.01 per share, as the "Series E Preferred Stock". All proposals were
adopted by the stockholders and an amendment to the Company's Certificate of
Incorporation was filed with the State of Delaware on May 9, 1996. The
certificate of amendment as filed, amended the name of the Company, authorized a
share of Series D Preferred Stock, authorized 1,000,000 shares of the Series E
Preferred Stock and increased the authorized shares of Common Stock to
30,000,000. As shares of the Series E Preferred Stock are issued, additional
shares of the Series E Preferred Stock and shares of Common Stock may be
authorized from time to time. Since 862,000 shares of the Series E Preferred
Stock have been issued, the amended Certificate of Incorporation, attached
hereto as Exhibit A, has increase the authorized shares of Common Stock and
Series E Preferred Stock.
On June 30, 1996, EACC exercised its option and purchased 334,000 shares of
the Series E Preferred Stock for $334,000. The shares of Series E Preferred
Stock purchased will be designated Series E Class I Preferred Stock, upon the
filing of the Certificate of Amendment to the Corporation's Certificate of
Incorporation, as described herein.
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VOTING SECURITIES AND SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at July 19, 1996 based
upon information obtained by the persons named below, with respect to the
beneficial ownership of common shares by (i) each person known by the Company to
be the owner of 5% or more of the outstanding common shares; (ii) by each
officer and director; (iii) and by all officers and directors as a group.
Number of Percentage
Name Shares Owned
- ---- ------ -----
American Toys, Inc.(1)(2) 2,548,930 66.0%
448 West 16th Street
New York, New York
Ilan Arbel(1) 2,548,930 66.0%
c/o American Toys, Inc.
448 West 16th Street
New York, New York
Richard Brady 125,662 3.3%
c/o Play Co. Toys
550 Rancheros Drive
San Marcos, CA 92069
Alan Berkun 50,000 1.3%
83 Arnold Ct.
East Rockaway, New York
Angela Burnett(3) 10,000 .3%
c/o Play Co. Toys
550 Rancheros Drive
San Marcos, CA 92069
Sheikhar Boodram -- --
c/o Play Co. Toys
550 Rancheros Drive
San Marcos, CA 92069
Officers and Directors
as a Group (5 persons)(1)-(3) 2,734,592 70.9%
--------- -----
(footnotes on following page)
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(1) Ilan Arbel is the Chief Executive Officer and a Director of American Toys
and may be deemed an indirect beneficial owner of a majority of the issued
and outstanding Common Stock of American Toys (through his family's
ownership of Mister Jay Fashions International, Inc. and EACC),
notwithstanding that Mr. Arbel disclaims any beneficial ownership of such
shares which are owned or controlled by his family. Accordingly, Mr. Arbel
will be able to exercise control over the shares of Common Stock owned by
American Toys.
(2) Does not include the 1,157,028 shares issuable upon conversion of the
Series D Preferred Stock upon the adoption of an amendment to the Company's
Certificate of Incorporation as described herein. See "Authorization to
Amend the Preferences and Rights of the Series D Preferred Stock and Series
E Preferred Stock and to Amend the Designation of the Series E Preferred
Stock into Two Separate Classes" and "Exhibit A - Certificate of Amendment
to the Certificate of Incorporation."
(3) Includes an option to purchase 10,000 shares of Common Stock at a price of
$2.10 per share granted in June 1994, which option has vested and is
exercisable.
MANAGEMENT
Officers and Directors.
The directors of the Company are elected annually by the shareholders and
the officers are appointed annually by the Board of Directors. Vacancies on the
Board of Directors may be filled by the remaining directors. Each director and
officer will hold office until the next annual meeting of shareholders, or until
his successor is elected and qualified. The executive officers and directors of
the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Ilan Arbel 42 Chairman of the Board of Directors
Richard Brady 44 Chief Executive Officer and President
Angela Burnett 44 Secretary and Chief Financial Officer
Alan Berkun 36 Director
Sheikhar Boodram 34 Director
- ----------
All Directors hold office until the next annual meeting of stockholders or
until their successors are duly elected and qualified. Officers are elected
annually by, and serve at the discretion of the Board of Directors. There are no
family relationships between or among any Officers or Directors of the Company.
The Company granted to Hanover Sterling & Company, Ltd., the Underwriter of the
Company's initial public offering, the right to nominate one individual for
election to the Company's Board of Directors. Since Hanover Sterling & Company,
Ltd. ceased operations in February 1995, this right is no longer outstanding.
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Ilan Arbel has been the Chairman of the Board of Directors of the Company
since June 1994 and a Director of the Company since May 1993. Mr. Arbel has been
the President, Chief Executive Officer and a Director of American Toys, Inc.
since its inception in February 1993, however, from July 1993 to March 1995
another individual was the President of American Toys. Mr. Arbel has been
President, Chief Executive Officer, and a Director of Mister Jay Fashions
International, Inc. since 1991. Since August 1995, Mr. Arbel has been a Director
of Multimedia Concepts International, Inc. From 1989 to present, Mr. Arbel has
been the sole Officer and Director of TransAtlantic Commerce Corp., a company
involved in investments and finance in the United States and Europe. Mr. Arbel
is a graduate of the University Bar Ilan in Israel, with B.A. degrees in
Economics, Business and Finance.
Richard Brady became the Chief Executive Officer and President in November
1995. Mr. Brady is a co-founder of the Company and was the Executive
Vice-President, Secretary and a Director from its inception in 1974 until
November 1995. In June 1994, Mr. Brady was no longer the Secretary upon the
election of Angela Burnett as Secretary.
Angela Burnett has been the Treasurer of the Company since 1992 and the
Secretary of the Company since June 1994. In December 1995, Ms. Burnett was
appointed Chief Financial Officer and Secretary. Ms. Burnett has been employed
by the Company since 1985, where she was initially employed as the data entry
employee in charge of inventory control, becoming Assistant Controller of the
Company in 1988.
Sheikhar Boodram was appointed as a Director of the Company on February 2,
1996. Mr. Boodram has been a Director of American Toys since May 1993. From
September 1992 to present, Mr. Boodram has been employed as Vice-President and a
Director of Mister Jay Fashions International, Inc. From October 1991 to
September 1992, Mr. Boodram was employed as a designer with Mister Jay Fashions
International, Inc. Mr. Boodram has been the President and Secretary of
Multimedia Concepts International, Inc. since June 12, 1995. Mr. Boodram is the
sole Officer and Director of American Eagle Industries Corp. and Match II, Inc.
From 1979 until October 1991, Mr. Boodram was the production manager for Lady
Helene Sophisticates, Ltd., a manufacturer of ladies garments which ceased
operations in 1991.
Alan Berkun has been a Director of the Company since July 1993. Mr. Berkun
has also been a Director of American Toys since July 1993. Mr. Berkun has been a
Director of Multimedia Concepts International, Inc., since June 1995. For more
than the past five years, Mr. Berkun has been employed by Russo Securities as
its general counsel. Mr. Berkun was licensed as an NASD Series 7 Registered
Representative with Russo Securities from October 1991 through November 1991 and
June 1989 through October 1989. Mr. Berkun's Series 7 license lapsed in December
1993, however, subsequently, Mr. Berkun received a waiver from the NASD and
renewal of his Series 7 status. Presently, Mr. Berkun is the sole Officer,
Director and stockholder of Emme Corp., d/b/a Marlowe & Company, a registered
NASD broker/dealer. Mr. Berkun is an attorney licensed in the State of New York.
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The Company has agreed to indemnify its officers and directors with respect
to certain liabilities including liabilities which may arise under the
Securities Act of 1933, as amended. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to any charter, provision, by-law,
contract, arrangement, statute or otherwise, the Company has been advised that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer, or controlling person of the Company in the successful
defense of any such action, suit or proceeding) is asserted by such director,
officer or controlling person of the Company in connection with the Securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Executive Compensation
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and Non-Plan
(as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded to,
earned by, paid by the Company during the years ended March 31, 1996, 1995 and
1994 to each of the named executive officers of the Company.
Summary Compensation Table
Annual Compensation
-------------------
(a) (b) (c) (d) (e)
Name and Principal Other Annual
Position Year Salary($) Bonus($)(1) Compensation($)
-------- ---- --------- ----------- ---------------
Richard Brady 1996 117,230 -- 7,979(2)
Chief Executive Officer, 1995 120,000 -- 7,829(2)
President and Director 1994 114,450 -- 7,229(2)
Thomas Davidson 1996(3) 79,203 -- 5,793(4)
President and Director 1995 120,000 -- 8,690(4)
1994 120,000 -- 8,090(4)
- ----------
(footnotes on following page)
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(1) No bonuses were paid during the periods herein stated.
(2) Includes an automobile allowance of $6,600 for 1996, 1995 and 1994,
respectively, and the payment of life insurance premiums of $1,379, $1,888,
and $629, for 1996, 1995 and 1994, respectively.
(3) Mr. Davidson resigned as both the President and as a Director of the
Company, effective November 28, 1995. (
(4) Includes automobile allowance of $4,800, $7,200 and $6,600 for fiscal 1996,
1995 and 1994, respectively, and the payment of life insurance premiums of
$993, $1,489 and $2,090 for 1996, 1995 and 1994, respectively.
- ----------
Employment Agreements
In May 1993 the Company entered into a three year employment agreement with
Richard Brady, the Chief Executive Officer and President of the Company, which
agreement has expired. Mr. Brady is continuing as Chief Executive Officer and
President of the Company and is receiving the same compensation. The employment
agreement provided for an annual salary of $120,000. In addition, the employment
agreement provided for an automobile allowance and an annual bonus of 2% of the
earnings of the Company before depreciation, interest and taxes ("EBDIT"),
provided the Company earned a minimum EBDIT of $750,000 for the fiscal year
ended March 31, 1994 and $900,000 for the fiscal year ended March 31, 1995. The
Company also pays for $500,000 of life insurance for Mr. Brady. No bonuses were
earned for either of the years ended March 31, 1996, 1995 or 1994.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1994, the Company applied to the California Corporation Department
to change its domicile from California, where it was incorporated in 1973, to
Delaware, through a merger with a newly formed Delaware corporation (the
"Delaware Reorganization"). Each share of outstanding Common Stock of the
California corporation was exchanged for 50 shares of Common Stock of the
Delaware corporation in connection with the Delaware Reorganization.
In June 1994, Irwin Lampert and Alan Berkun each acquired 50,000 shares of
the Common Stock for total consideration of $500 each. For financial statement
purposes, these shares were valued at 50% of the November 1994 initial public
offering price, or $250,000, as these are unregistered shares. The difference
between the valuation and cash received, $249,000, has been charged to
operations for the year ended March 31, 1995. Also in June 1994, Lampert &
Lampert was issued 50,000 shares of the Common Stock, in lieu of legal fees.
On November 9, 1994, the Company redeemed an aggregate of 224,708 shares of
the Series B preferred stock owned by Messrs. Davidson and Brady aggregating
$224,708, from the proceeds of the Company's initial public offering.
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As of January 10, 1995, the Series C Preferred Stock was converted into
428,580 shares of Common Stock. During January 1995, effective February 1, 1995,
the Donald Welker Trust gave notice to the Company to put 122,368 shares of its
Series B Preferred Stock to the Company as well as accrued dividends thereon,
aggregating approximately $137,000. On April 3, 1995, the Company redeemed the
122,368 shares of Series B Preferred Stock at the redemption price of $122,368
and paid dividends on the Series B Preferred Stock aggregating $15,931.
On October 18, 1995, prior to the Congress Financing, the Company entered
into an Agreement with EACC, pursuant to which EACC agreed to provide to
Imperial Bank a letter of credit terminating April 16, 1996, in the amount of
$2,000,000. Pursuant to which EACC received an option to purchase $350,000
shares of Common Stock at 25% of the closing bid price on the date prior to
exercise. This option expired unexercised in April 1996. Upon the consummation
of the Congress Financing the Imperial Bank line of credit was repaid and
terminated.
On January 30, 1996, pursuant to the requirements of the Loan Agreement
with Congress, American Toys, the majority stockholder of the Company, converted
all $1,400,000 of debt owed by the Company into equity. In exchange for the
debt, American Toys received from the Company one share of the Series D
Preferred Stock, with the right to vote to elect 2/3 of the Company's Board of
Directors. The conversion of debt into equity increased the Company's
stockholders' equity and reduces total liabilities, thereby reducing the
Company's debt to equity ratio. See "Recent Developments."
On February 1, 1996, the Company entered into the Loan Agreement with
Congress to replace the Imperial Bank credit line. The Loan Agreement provides
the Company with a secured line of credit of up to 60% of the value of all of
its inventory, not to exceed $7,000,000 (the "Congress Financing"). The Congress
Financing is secured by the Company's assets and a $2,000,000 letter of credit
("L/C") provided by Europe American Capital Corp. ("EACC") an affiliate of Ilan
Arbel, the Company's Chairman of the Board. Additionally, the Congress Financing
is guaranteed by American Toys and Mr. Jay. See "Recent Developments."
In connection with the issuance of the L/C the Company on February 2, 1996
granted to EACC options (i) to purchase up to an aggregate of 1,250,000 shares
of Common Stock of a purchase price of 25% of the closing bid price for the
Common Stock on the last business day prior to exercise, for a period of six
months from issuance and (ii) to purchase up to an aggregate of 20,000,000
shares of the Company's Series E Preferred Stock. The Company's estimated value
of the option described in (i) above is insignificant, which option was
terminated by EACC in June 1996. The Company estimated the value of the option
described in (ii) above to be $234,000 and recorded such amount as additional
paid-in-capital.
In February 1996, the Welker Trust gave notice to the Company to put the
remaining 122,368 shares of its Series B Preferred Stock to the Company as well
as accrued dividends thereon, aggregating $9,152.88. Pursuant to an oral
agreement between the Company and the
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Welker Trust, the Company redeemed 122,368 shares plus accrued interest thereon,
pursuant to a payment schedule. The Company paid $43,840.30 to the Welker Trust
on each of March 1, 1996, April 1, 1996 and May 1, 1996.
On March 18, 1996, EACC loaned $500,000 to the Company which was
subordinated to the Congress Financing. In addition, EACC paid for approximately
$28,000 of the costs incurred to arrange the Congress Financing, bringing the
aggregate due to EACC to $528,000 as of March 31, 1996. Subsequent to March 31,
1996, the $528,000 debt was converted into equity in the form of 528,000 shares
of Series E Preferred Stock pursuant to the option received by EACC pursuant to
the Congress Financing. These shares of Series E Preferred Stock will be
designated Series E Class I Preferred Stock.
On June 30, 1996, EACC exercised its option and purchased 334,000 shares of
the Series E Preferred Stock for $334,000. The shares of Series E Preferred
Stock purchased will be designated Series E Class I Preferred Stock.
I. AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
The Company's majority stockholder, American Toys, which owns 2,548,930 or
approximately 66.0% of the 3,863,530 issued and outstanding shares of the
Company's Common Stock outstanding as of the date hereof, executed a written
consent authorizing the Company to amend its Certificate of Incorporation to (i)
amend the rights and preferences of the Series D Preferred Stock to provide that
the share shall be convertible into 1,157,028 shares of the Company's Common
Stock and (ii) amend the Company's Series E Preferred Stock to designate two
separate classes, of which 10,000,000 shares shall be designated the "Series E
Class I Preferred Stock", which shares shall be convertible at any time into 20
shares of the Company's Common Stock, and 10,000,000 shares of which shall be
designated the "Series E Class II Preferred Stock", which shares will be
convertible at the option of the holder, commencing two (2) years from issuance,
into 20 shares of the Company's Common Stock. Though the stockholders have
approved the authorization of the Series E Preferred Stock and the designation
it into two classes, the Certificate of Incorporation, shall be amended from
time to time to increase the authorized number of shares as required, pursuant
to EACC's exercise of its option.
The conversion price for the Series D Preferred Stock was decided on by the
board of directors and is based on the average of the closing bid price ($1.21)
for the Company's Common Stock for a period of approximately 90 days from March
1, 1996 to May 31, 1996. This was done in conjunction with the proposed spin-off
of the Company's shares owned by American Toys.
Under Section 228 of the General Corporation Law of the State of Delaware,
any action requiring the consent of the stockholders at an annual or special
meeting of the stockholders of the Company, may be taken without a meeting,
without prior notice and without a vote, if a
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consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Company.
Authorization of Conversion Provision of Series D Preferred Stock
The Board of Directors has unanimously approved a proposal to amend the
Certificate of Incorporation such that the Company's Series D Preferred Stock
shall be convertible into shares of the Company's Common Stock. As of July 19,
1996, there were 3,863,530 shares of Common Stock issued and outstanding,
150,000 shares reserved for issuance under the Company's Senior Management
Incentive Plan and 17,240,000 shares issuable upon the conversion of the 862,000
shares of the Series E Preferred Stock presently outstanding.
As of July 19, 1996, American Toys, the Company's majority shareholder,
owns 2,548,930 shares of the Company's Common Stock as well as one share of the
Company's Series D Preferred Stock which was obtained by American Toys by
converting $1,400,000 of debt owed by the Company into a share of preferred
stock, with the right to elect 2/3 of the Company's Board of Directors and which
has a liquidation value of $1,400,000.
American Toys desires to convert its share of Series D Preferred Stock into
shares of the Company's Common Stock in order to distribute to its stockholders
its total ownership interest in the Company. The distribution would be termed a
"spin-off" of all of its shares of the Company's Common Stock, inclusive of the
2,548,930 shares currently owned and the 1,157,028 shares to be received upon
conversion of the share of Series D Preferred Stock. Assuming the conversion of
the share of Series D Preferred Stock into 1,157,028 shares of Common Stock,
American Toys would own 3,705,959 shares of Common Stock, which shall be
distributed to its stockholders at the rate of approximately 1.49 shares for
each share of common stock of American Toys owned as of August 15, 1996. This
estimate is based on the anticipated number of shares of American Toys
outstanding on such date, less certain shares which shall not be eligible for
the distribution.
Authorization to Amend the Designation of the Series E Preferred Stock to Become
Two Classes
The Board of Directors has unanimously approved a proposal to amend the
Company's Certificate of Incorporation to amend the rights and preferences of
the Company's Series E Preferred Stock in order to establishes two classes,
whereby 10,000,000 shares will be designated the Series E Class I Preferred
Stock, which shares shall be convertible at any time and whereby 10,000,000
shares shall be designated the Series E Class II Preferred Stock, which shares
will be convertible commencing two years from issuance, at the option of the
holder.
The Company is currently in need of additional capital in order to open
additional stores and to refocus its business operations. EACC has stated to the
Board of Directors that it would
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provide additional capital by exercising its option to purchase shares of the
Series E Preferred Stock, only if such shares were immediately convertible into
shares of Common Stock. The Board agreed to separate the Series E Preferred
Stock into two classes, one of which permits the immediate conversion of the
Series E Preferred Shares into Common Stock and the other which continues to
require a two year holding period. The Company has asked American Toys, the
Company's majority shareholder, and American Toys has agreed to give its written
consent to this proposal so that the Company can obtain the additional financing
needed. In addition, all of the shares of Series E Preferred Stock previously
issued to EACC will be redesignated as Series E Class I Preferred Shares. There
are no commitments or agreements with regards to the exercise of the option by
EACC.
Amendment Proposed by the Board of Directors
The full text of the Amendment to Certificate of Incorporation is annexed
hereto as Exhibit A to this Information Statement. The following description of
the amendment is qualified in its entirety by reference to Exhibit A.
The Company's Certificate of Incorporation currently authorizes thirty-one
million four hundred sixty-nine thousand four hundred forty-five (31,469,445)
shares consisting of thirty million (30,000,000) shares of Common Stock, par
value $.01 per share and one million four hundred sixty-nine thousand four
hundred forty-five (1,469,445) shares of preferred stock, par value $.01 per
share, of which 469,444 have been designated the Series B Preferred Stock, 1
share of which has been designated the Series D Preferred Stock, and 1,000,000
shares of which have been designated the Series E Preferred Stock.
The one share of Series D Preferred Stock is currently not convertible,
however, it has a liquidation value of $1,400,000. As of July 19, 1996, the
Company has outstanding 3,863,530 shares of Common Stock.
The proposed amendment would amend the Certificate of Incorporation to
authorize 42,000,001 shares, consisting of 40,000,000 shares of Common Stock,
one share of the Series D Preferred Stock and 2,000,000 shares of the Series E
Preferred Stock, of which 1,900,000 shares shall be the Series E Class I shares
and 100,000 shares shall be the Series E Class II shares. Pursuant to the
Company's May 3, 1996 annual meeting, the stockholders authorized an amendment
to the Company's Certificate of Incorporation to authorize 410,000,000 shares of
Common Stock, one share of the Series D Preferred Stock and 20,000,000 shares of
the Series E Preferred Stock. The board has decided only to increase the
authorized shares of the Company's securities as needed, pursuant to EACC's
desire to exercise its option. Therefore, the enclosed amendment only reflects a
portion of the shares which have been previously authorized by the Company's
stockholders. See the Company's annual report of Form 10-KSB for the year ended
March 31, 1996 enclosed herewith.
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Consequences of the Amendment
Stockholders should note that certain disadvantages may result from the
adoption of the amendment. Such disadvantages may include a significant
reduction in their interest in the Company with respect to earnings per share,
voting, liquidation, value and book and market value per share if the additional
authorized shares of Common Stock are issued pursuant to the conversion of the
share of the Series D Preferred Stock and/or shares of the Series E Class I
Preferred Stock. Based upon the potentially large number of shares of Common
Stock issuable upon the conversion of such shares, stockholders may find that
the market liquidity of their shares may decrease significantly, in the event
such shares are brought to market. Additionally, the price per share upon the
conversion of the Series E Preferred Stock is $.05 per share, which is
significantly below the current quoted bid price for such shares. Therefore,
there would be a depressive effect on the market if such shares are converted
and brought to market.
FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED MARCH 31, 1996 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS TO STOCKHOLDERS WITHOUT CHARGE UPON
WRITTEN REQUEST THEREFOR SENT TO ANGELA BURNETT, SECRETARY, PLAY CO. TOYS &
ENTERTAINMENT CORP., 550 RANCHEROS DRIVE, SAN MARCOS, CALIFORNIA 92069. EACH
SUCH REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION THAT AS OF JUNE 21, 1996
THE PERSON MAKING THE REQUEST WAS THE BENEFICIAL OWNER OF COMMON SHARES OF THE
COMPANY ENTITLED TO VOTE AT THE SPECIAL MEETING OF STOCKHOLDERS.
By Order of the Board of Directors,
Angela Burnett
Secretary
July 19, 1996
13
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PLAY CO. TOYS & ENTERTAINMENT CORP.
Under Section 242 of the Delaware Corporation Law:
The undersigned, for the purpose of amending the Certificate of
Incorporation of Play Co. Toys & Entertainment Corp., does hereby certify and
set forth:
FIRST:
The name of the Corporation is
PLAY CO. TOYS & ENTERTAINMENT CORP.
SECOND:
The Certificate of Incorporation was filed by the Department of State on
June 15, 1994.
THIRD:
The amendment to the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is to (i) amend the rights and
preferences of the Series D Preferred Stock to include a conversion provision,
whereby the share of Series D Preferred Stock shall be convertible into
1,157,028 shares of the Corporation's Common Stock, (ii) amend the designation
of the Series E Preferred Stock to designate two separate classes, of which
1,900,000 shares shall be designated the "Series E Class I Preferred Stock" and
100,000 shall be designated as the "Series E Class II Preferred Stock" and (iii)
to increase the number of authorized shares of Common Stock from 30,000,000 to
40,000,000. The Certificate of Incorporation of this Corporation are amended by
changing "Article FOURTH", so that, as amended, said Article shall read as
follows:
"FOURTH
A. Authorized Capital Stock. The total number of shares of all classes of
capital stock which this Corporation shall have authority to issue is FORTY-TWO
MILLION ONE (42,000,0001) shares consisting of FORTY MILLION (40,000,000) shares
of Common Stock, par value $.01 per share (hereinafter, the "Common Stock"), and
TWO MILLION ONE
<PAGE>
(2,000,001) shares of preferred stock, par value $.01 per share (hereinafter,
the "Preferred Stock"), of which 1 share has been designated, the "Series D
Preferred Stock", the relative rights, preferences and limitations of which are
as set forth in sub-paragraph (B) of this Article FOURTH and 2,000,000 shares
have been designated, "Series E Preferred Stock", to be issued in classes, of
which 1,900,000 shall be designated as the "Series E Class I Preferred Stock"
and 100,000 shares as the "Series E Class II Preferred Stock", the relative
rights, preferences and limitations of which are as set forth in sub-paragraph
(C) of this Article FOURTH.
B. Series D Preferred Stock.
(i) Designation. The designation of this series of Preferred Stock,
par value $.01 per share, shall be the "Series D Preferred Stock."
(ii) Rank. The Series D Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and dissolution, rank
(a) junior to the Series E Preferred Stock and any other series of
Preferred Stock established by the Board of Directors and, if required by
Section vii, approved by the affirmative vote of the holder of the share of
the Series D Preferred Stock, the terms of which shall specifically provide
that such Series shall rank prior to the Series D Preferred Stock (any such
other securities are referred to herein collectively as the "Senior
Securities"), (b) on a parity with any other series of the Series Preferred
Stock established by the Board of Directors, the terms of which shall
specifically provide that such series shall rank on a parity with the
Series D Preferred Stock (the Series D Preferred Stock and any such other
securities are referred to herein collectively as the "Parity Securities"),
and (c) prior to any other equity securities of the Corporation, including
the Common Stock of the Corporation (all of such equity securities of the
Corporation to which the Series D ranks prior, including the Common Stock,
are referred to herein collectively as the "Junior Securities").
(iii) Dividends.
(a) The Holder of the share of Series D Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors,
out of funds legally available for the payment of dividends,
cumulative dividends at the annual rate of 7%. The dividend is payable
within 90 days of each year anniversary thereof (the "Series D
Dividend Payment Date"), in preference to dividends on the Junior
Securities. Such dividend shall be paid to the holder of record at the
close of business on the date ten business days prior to the Series D
Dividend Payment Dates, which dividend may be paid in cash or kind, at
the discretion of the Corporation. Each of such dividends shall be
fully cumulative and shall accrue (whether or not declared), without
interest, from the date such dividends are payable as herein provided.
(b) If at any time the Corporation shall have failed to pay full
dividends which have accrued (whether or not declared) on any Senior
Securities, no dividend shall be declared by the Board of Directors or
paid or set apart for payment by the Corporation on the share of the
Series D Preferred Stock or any other Parity Securities unless, prior
to or concurrently with such declaration, payment or setting apart for
payment, all accrued and unpaid dividends on all outstanding shares of
Senior Securities shall have been or be declared and paid
2
<PAGE>
or set apart for payment, without interest. No dividends shall be
declared or paid or set apart for payment on any Parity or Junior
securities for any period unless full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Series D Preferred Stock for all dividend payment periods terminating
on or prior to the date of payment of such full cumulative dividends.
If any dividends are not paid in full, as aforesaid, upon the share of
the Series D Preferred Stock and any other Parity Securities, all
dividends declared upon the share of the Series D Preferred Stock and
any other Parity Securities shall be declared pro rate so that the
amount of dividends declared on the share of Series D Preferred Stock
and such other Parity Securities shall in all cases bear to each other
the same ratio that accrued dividends per share on the Series D
Preferred Stock and such other Parity securities bear to each other.
No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series D Preferred
Stock or any other Parity Securities which may be in arrears.
(c) The Holder of the share of the Series D Preferred Stock shall
be entitled to receive the dividends provided for in paragraph
(iii)(a) hereof in preference to and in priority over any dividends
upon any of the Junior Securities.
(d) Subject to the foregoing provisions of this Section (iii) the
Board of Directors may declare, and the Corporation may pay or set
apart for payment, dividends and other distributions on any of the
Junior Securities, and may purchase or otherwise redeem any of the
Junior Securities, and may purchase or otherwise redeem any of the
Junior Securities or any warrants, rights or options exercisable for
or convertible into any of the Junior Securities, and the Holder of
the share of the Series D Preferred Stock shall not be entitled to
share therein.
(iv) Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
Holder of the share of Series D Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available
for distribution to its stockholders an amount in cash equal to
$1,400,000 for the share outstanding, before any payment shall be made
or any assets of the Corporation available for distribution to its
stockholders an amount in cash equal to $1,400,000 for the share
outstanding, before any payment shall be made or any assets
distributed to the holders of any of the Junior Securities, provided,
however, that the Holder of the outstanding share of Series D
Preferred Stock shall not be entitled to receive such liquidation
payment until the liquidation payments on all outstanding shares of
Senior Securities, if any, shall have been paid in full. If the assets
of the Corporation are not sufficient to pay in full the liquidation
payments payable to the Holder of the outstanding share of the Series
D Preferred Stock or any other Parity Securities, then the holders of
all such shares shall share ratably in such distribution of assets in
accordance with the amount which would be payable on such distribution
if the amounts to which the Holder of the
3
<PAGE>
outstanding share of Series D Preferred Stock and the holders of
outstanding shares of such other Parity Securities are entitled were
paid in full.
(b) For the purpose of this Article FOURTH, neither the voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or their consideration) of all or substantially all
the property or assets of the corporation or the consolidation or
merger of the Corporation with one or more other corporations shall be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, unless such voluntary sale, conveyance, lease, exchange
or transfer shall be in connection with a dissolution or winding up of
the business of the Corporation.
(v) Redemption. The share of Series D Preferred Stock is not
redeemable by the Corporation.
(vi) Conversion.
(a) Subject to and upon compliance with the provisions of this
Section (vi), the Holder of the share of Series D Preferred Stock
shall have the right, at such Holder's option, at any time, to convert
such share into 1,157,028 shares of the Corporation's Common Stock.
The shares issued pursuant to the conversion shall be fully paid and
non-assessable shares of Common Stock of the Corporation.
(b)(i) In order to exercise the conversion privilege, the Holder
of the share of Series D Preferred Stock shall surrender the
certificate representing such share at the office of the transfer
agent for the Series D Preferred Stock, appointed for such purpose by
the Corporation, with the Notice of Election to Convert on the back of
said certificate completed and signed. Unless the shares of Common
Stock issuable on conversion are to be issued in the same name in
which such share of Series D Preferred Stock is registered, the share
surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by
the Holder or such Holder's duly authorized attorney and an amount
sufficient to pay any transfer or similar tax.
(ii) As promptly as practicable after the Surrender of the
certificate for the share of Series D Preferred Stock as
aforesaid, the Corporation shall issue and shall deliver at such
office to such holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such share in accordance with the
provisions of this Section (vi).
(iii) The conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificate for the share of Series D Preferred Stock shall
have been surrendered and such notice received by the Corporation
as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented thereby
at such
4
<PAGE>
time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding
day on which such stock transfer books are open, and such notice
received by the Corporation. All shares of Common Stock delivered
upon conversion of the Series D Preferred Stock will upon
delivery be duly and validly issued and fully paid and
non-assessable, free of all liens and charges and not subject to
any preemptive rights.
(c) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common stock held in its treasury, or both, for the purposes
of effecting the conversion of the Series D Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of
the outstanding share of Series D Preferred Stock not theretofore
converted. For purposes of this subsection (c), the number of shares
of Common Stock which shall be deliverable upon the conversion of the
outstanding share of Series D Preferred Stock shall be 1,157,028 .
(vii) Voting Rights.
(a) The Holder of the Series D Preferred Stock shall have the
right to vote at all meetings of the stockholders of the Corporation,
or consent in writing in lieu of voting, or otherwise, solely for the
election of the Corporation's Board of Directors.
(b) At such times as the shares of Series D Preferred Stock is
outstanding, the Board of Directors shall be comprised of such odd
number of Directors as shall be fixed by the Board of Directors or as
stated in the Corporation's Certificate of Incorporation; provided
however, that such number of Directors shall not be less than three
(3).
(c) The Holder of the share of Series D Preferred Stock, voting
as a separate class shall have the sole right to vote for or consent
in writing in lieu of voting, and elect two-thirds (2/3) of the
Directors of the Corporation, who shall be known as the Preferred
Directors, and to remove any Preferred Directors with or without cause
at any time and to fill all vacancies of Preferred Directors.
(d) So long as any shares of the Series D Preferred Stock are
outstanding, the Corporation will not, without the affirmative vote or
consent of the holders of at least a majority of the outstanding
shares of the Series D Preferred Stock, voting as a class, to vote to
amend the Corporation's Certificate of Incorporation to (i) increase
or decrease the aggregate number of authorized shares of the Series D
Preferred Stock, (ii) increase or decrease the par value of the Series
D Preferred Stock or (iii) alter the preferences, powers or rights of
the Series D Preferred Stock so as to affect them adversely.
5
<PAGE>
C. Series E Preferred Stock.
(i) Designation. The designation of this series of Preferred Stock,
par value $.01 per share, shall be the "Series E Preferred Stock", which
shall be issued in classes, the "Series E Class I Preferred Stock (the
"Series E Class I" ) and the "Series E Class II Preferred Stock (the
"Series E Class II"). The number of shares of Series E Preferred Stock
authorized hereby shall be an aggregate of 2,000,000 shares, 1,900,000
designated as Series E Class I and 100,000 designated as Series E Class II.
(ii) Rank. The Series D Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and dissolution, rank
(a) junior to any other Senior Securities established by the Board of
Directors and, if required by Section vii, approved by the affirmative vote
of the holders of a majority of the shares of the Series E Preferred Stock,
the terms of which shall specifically provide that such series shall rank
prior to the Series E Preferred Stock, (b) on a parity with any other
Parity Securities established by the Board of Directors, the terms of which
shall specifically provide that such series shall rank on a parity with the
Series E Preferred Stock, and (c) prior to the Series D Preferred Stock and
any other Junior Securities of the Corporation.
(iii) Dividends.
(a) The holders of the shares of the Series E Preferred Stock
shall be entitled to receive, when and as declared by the Board of
Directors, out of funds legally available for the payment of
dividends, cumulative dividends at $1.00 per share. The dividend is
payable within 90 days of each year anniversary thereof (the "Series E
Dividend Payment Date"), in preference to dividends on the Junior
Securities. Such dividend shall be paid to the holder of record at the
close of business on the date ten business days prior to the Series E
Dividend Payment Dates, which dividend may be paid in cash or kind, at
the discretion of the Corporation. Each of such dividends shall be
fully cumulative and shall accrue (whether or not declared), without
interest, from the date such dividends are payable as herein provided.
(b) If at any time the Corporation shall have failed to pay full
dividends which have accrued (whether or not declared) on any Senior
Securities, no dividend shall be declared by the Board of Directors or
paid or set apart for payment by the Corporation on the shares of the
Series E Preferred Stock or any other Parity Securities unless, prior
to or concurrently with such declaration, payment or setting apart for
payment, all accrued and unpaid dividends on all outstanding shares of
Senior Securities shall have been or are declared and paid or set
apart for payment, without interest. No dividends shall be declared or
paid or set apart for payment on any Parity or Junior securities for
any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Series E Preferred Stock for all dividend payment periods terminating
on or prior to the date of payment of such full cumulative dividends.
If any dividends are not paid in full, as aforesaid, upon the shares
of the Series E Preferred Stock and any other Parity Securities shall
be declared pro rata so that the amount of
6
<PAGE>
dividends declared per share on the Series E Preferred Stock and such
other Parity Securities shall in all cases bear to each other the same
ratio that accrued dividends per share on the Series E Preferred Stock
and such other Parity securities bear to each other. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the Series E Preferred Stock or any
other Parity Securities which may be in arrears.
(c) Holders of the shares of the Series E Preferred Stock shall
be entitled to receive the dividends provided for in paragraph
(iii)(a) hereof in preference to and in priority over any dividends
upon the Series D Preferred Stock and any other Junior Securities.
(d) Subject to the foregoing provisions of this Section (iii) the
Board of Directors may declare, and the Corporation may pay or set
apart for payment, dividends and other distributions on any of the
Junior Securities, and may purchase or otherwise redeem any of the
Junior Securities or any warrants, rights or options exercisable for
or convertible into any of the Junior Securities, and the holders of
shares of the Series E Preferred Stock shall not be entitled to share
therein.
(iv) Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of shares of Series E Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available
for distribution to its stockholders an amount in cash equal to $1.00
per share for each share outstanding, before any payment shall be made
or any assets distributed to the holders of any of the Junior
Securities, provided, however, that the holder of the outstanding
shares of the Series E Preferred Stock shall not be entitled to
receive such liquidation payment until the liquidation payments on all
outstanding shares of Senior Securities, if any, shall have been paid
in full. If the assets of the Corporation are not sufficient to pay in
full the liquidation payments payable to the holders of the
outstanding shares of the Series E Preferred Stock or any other Parity
Securities, then the holders of all such shares shall share ratably in
such distribution of assets in accordance with the amount which would
be payable on such distribution if the amounts to which the holders of
the outstanding shares of Series E Preferred Stock and the holders of
outstanding shares of such other Parity Securities are entitled were
paid in full.
(b) For the purposes of this Article FOURTH, neither the
voluntary sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or their consideration) of all or
substantially all the property or assets of the Corporation or the
consolidation or merger of the Corporation with one or more other
corporations shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, unless such voluntary sale,
conveyance, lease, exchange or transfer shall be in connection with a
dissolution or winding up of the business of the Corporation.
(v) Redemption. The shares of Series E Preferred Stock is not
redeemable by the Corporation.
7
<PAGE>
(vi) Conversion.
(a) Subject to and upon compliance with the provisions of this
Section (vi), the holder of a share of Series E Preferred Stock
designated as Class I Series E Preferred Stock shall have the right,
at such holder's option, terminating five years from issuance, to
convert such share into 20 fully paid and non-assessable shares of
Common Stock of the Corporation. A holder of a share of Series E Class
I shall have the right, at such holder's option to convert such share
immediately upon issuance. A holder of the Series E Class II shall
have the right to convert such share, at such holder's option, at any
time commencing two years from issuance.
(b) The holders of shares of the Series E Preferred Stock at the
close of business on a Series E Dividend Payment Date shall be
entitled to receive the dividend payable on such shares on the
corresponding Series E Dividend Date withholding the conversion
thereof or the Corporation's default in payment of the dividend due on
such Series E Dividend Payment Date (except that holders of shares
called for redemption on a redemption date between such record date
and the Series E Dividend Payment Date shall not be entitled to
receive such dividend on such dividend payment date). However, shares
of Series E Preferred Stock surrendered for conversion during the
period between the close of business on any Series E Dividend Payment
Date and the opening of business on the corresponding Series E
Dividend Payment Date (except shares called for redemption on a
redemption date during such period) must be accompanied by payment of
an amount equal to the dividend payable on such shares on such Series
E Dividend Payment Date. A holder of shares of Series E Preferred
Stock on a Series E Dividend Payment Date who (or whose transferee)
surrenders any of such shares for conversion into shares of Common
Stock on a Series E Dividend Payment Date will receive the dividend
payable by the Corporation on such shares of Series E Preferred Stock
on such date, and the converting holder need not include payment in
the amount of such dividend upon surrender of shares of Series E
Preferred Stock for conversion. Exchange as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the
shares of Common Stock issued upon such conversion.
(c) (i) In order to exercise the conversion privilege, the
holders of each share of Series E Preferred Stock to be converted
shall surrender the certificate representing such share at the office
of the transfer agent for the Series E Preferred Stock, appointed for
such purpose by the Corporation, with the Notice of Election to
Convert on the back of said certificate completed and signed. Unless
the shares of Common Stock issuable on conversion are to be issued in
the same name in which such share of Series E Preferred Stock is
registered, each share surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder of such holder's duly authorized attorney
and an amount sufficient to pay any transfer or similar tax.
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(ii) As promptly as practicable after the surrender of the
certificates for shares of Series E Preferred Stock as aforesaid,
the Corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with
the provisions of this Section (iv).
(iii) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificates for shares of Series E Preferred Stock shall
have been surrendered and such notice received by the Corporation
as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented thereby
at such time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding
day on which such stock transfer books are open, and such notice
received by the Corporation. All shares of Common Stock delivered
upon conversion of the Series E Preferred Stock will upon
delivery be duly and validly issued and fully paid and
non-assessable, free of all liens and charges and not subject to
any preemptive rights.
(d) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common stock held in its treasury, or both, for the purposes
of effecting conversions of the Series E Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of
all outstanding shares of Series E Preferred Stock not theretofore
converted. For purposes of this subsection (d), the number of shares
of Common Stock which shall be deliverable upon the conversion of all
outstanding shares of Series E Preferred Stock shall be computed as if
at the time of computation of all such outstanding share were held by
a single holder.
(vii) Voting Rights. The holders of record of shares of the Series E
Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided in this Section (vii)(a) or as otherwise provided by
law.
(a) So long as any shares of the Series D Preferred Stock are
outstanding, the Corporation will not, without the affirmative vote or
consent of the holders of at least a majority of the outstanding
shares of the Series D Preferred Stock, voting as a class, to vote to
amend the Corporation's Certificate of Incorporation to (i) increase
or decrease the aggregate number of authorized shares of the Series D
Preferred Stock, (ii) increase or decrease the par value of the Series
D Preferred Stock or (iii) alter the preferences, powers or rights of
the Series D Preferred Stock so as to affect them adversely.
(b) In exercising the voting rights set forth in this Section
vii, each share of Class A Preferred Stock shall have one vote per
share.
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D. Common Stock.
(i) Dividends. Subject to the dividend and liquidation rights of the
Series D Preferred Stock and the Series E Preferred stock, the holders of
Common Stock shall be entitled to share equally all dividends declared and
paid by the Corporation.
(ii) Voting. The holders of record of Common Stock shall have one
vote, on all matters upon which stockholders of the Corporation may vote,
for each share of the Common Stock held by them.
(iii) Dissolution, Liquidation, Etc. In the event of the dissolution,
liquidation or winding up of the affairs of the Corporation, after payment
or provision for payment of the debts and other liabilities of the
Corporation and after the payment to the holders of the Preferred Stock as
provided for in this Certificate of Incorporation, the remaining assets of
the Corporation shall be distributed to the holders of Common Stock."
FIFTH:
The amendment to the Articles of Incorporation of the Corporation set forth
above was adopted by written consent of the Corporation's majority shareholder
on the 20th day of June, 1996.
IN WITNESS WHEREOF, the undersigned President of this Corporation has
executed this Certificate of Amendment on this ____ day of August, 1996.
PLAY CO. TOYS & ENTERTAINMENT CORP.
--------------------------------
Richard Brady, President
--------------------------------
Angela Burnett, Secretary
10
